Ms Jowell said the competition had been "fantastic" with all the bids being of the highest standard.

She praised the Liverpool bid for having an edge over rivals as it "embraced the whole city".

"Liverpool was the most vital, energetic bid," she said.

Sir Jeremy Isaacs, head of the panel of independent judges, said Liverpool's stunning dockside developments, city centre and strong visual arts had boosted its bid.

"Taken overall, Liverpool looked good, sounded good, feels good to be in and would deliver a really terrific year," he said.

"If one had to say one thing that swung it for Liverpool, it would have to be there was a greater sense there that the whole city is involved in the bid and
behind the bid."

City council chief executive David Henshaw described the win as "staggering" for the city.

"The city is growing up. We've got history and we should be proud of our history, but in the past we've been prisoners of our history," he said.

'Momentous day'

"It's a momentous day for Liverpool because it's about looking forward."

The leader of Liverpool City Council, Councillor Mike Storey, said: "This is like Liverpool winning the Champions League, Everton winning the double and the Beatles reforming all on the same day - and Steve Spielberg coming to the city to make a Hollywood blockbuster about it."

The European Union (EU) has designed the Capital of Culture programme to replace the City of Culture status which began with Athens in 1985.

The first Capital will be Cork in the Republic of Ireland in 2005, followed by Patras in Greece in 2006 and Luxembourg a year later.

Disappointed Newcastle-Gateshead bid organisers congratulated Liverpool and said the bid process had given the city "a kickstart".

"We've lost the boost that the Capital of Culture title would have given us, but the plans will go ahead," an organiser said.

Favourites

Newcastle-Gateshead were frontrunners with bookmakers highlighting the innovative Millennium Bridge, the multi-million pound Baltic Centre for contemporary art and the under-construction Sage Music Centre as potential selling points.